Professor Brian Bix
1L Contracts, Fall 2010
Mutual Assent and Consideration
Restatement 2nd §17: “a bargain in which there is a manifestation of mutual assent to the exchange and a consideration”
There is a contract if the recipient reasonably concludes that his assent would complete the agreement.
Intention to be Bound
Ray v. Eurice & Bros. (Maryland, 1952)
· Claimed intent is immaterial where a party has agreed in writing to a clearly expressed and unambiguous intent to the contrary. “A contract has… nothing to do with the personal, or individual, intent of the parties.” – Learned Hand.
Offer and Acceptance
Longeran v. Scolnick (California, 1954)
· After exchanging correspondence for some time, P put a deposit in escrow for D’s land and then sued when D failed to deliver the deed.
· Court held that the correspondence was clear that D had not made an offer. In the letters he had spoken of the need for speed if P wanted to purchase the property, and also made clear that he had been sending out form letters.
· Restatement 1st §25: “If from a promise, or manifestation of intention, or from the circumstances existing at the time, the person to whom the promise or manifestation is addressed knows or has reason to know that the person making it does not intend it as an expression of his fixed purpose until he has given a further expression of assent, he has not made an offer.”
· Compare with Restatement 2nd §24: An offer is the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
Bilateral Contracts
Izadi v. Gus Ford (Florida, 1989)
· Misleading language and placement of information in a newspaper ad led P to attempt to fulfill ad as he understood it, which D refused to do.
· Corbin on Contracts §64: Where “bait and switch” advertising is suspected, public policy “ought to justify a court in holding deceptive advertising to be an offer despite the seller’s… intent not to make any such offer.”
· Public policy rationale being used to justify punishment of a bad actor. Had P only been trying to take advantage of D’s vague language, he likely would not have been able to recover.
Normile v. Miller (North Carolina, 1985)
· Two parties claim possession of a piece of property. One had been bargaining for it, with back-and-forth offers etc. Then the property is sold to the other party. The first party is so informed, and decides at that point to sign the paperwork it has in its possession.
· The first party’s efforts to accept on a previous offer’s terms is invalid. A counteroffer is both a rejection and a new offer, affording the offering party the rights attendant, including the right to revoke before acceptance so long as the party is informed of the revocation by a reliable source.
· Bargaining in and of itself does not form an “implicit option.” Options are contracts in and of themselves, requiring mutual assent and consideration.
· In most cases, all of a contract’s conditions must be unconditionally agreed to in order to for a contract to form.
Unilateral Contracts
Unilateral Contracts are very rare. They are usually rewards, dares, bounties… agreements where the achievement of the end is unlikely, even if a party puts in its best effort.
Petterson v. Pattenberg
· D agreed to reduce a mortgage principal if paid by a certain date, earlier than that in the contract. When P arrived to fulfill the bargain, but before he had tried to pay, D informed him that the mortgage had been sold to a third party.
· This is old-style unilateral contracting: The offering party may withdraw the offer at any point up to full performance.
· Compare with Restatement 2nd §45: When performance begins, the offeror cannot withdraw its offer, but is not obligated to fulfill his end of it until completion.
Cook v. Coldwell Banker (Missouri, 1998)
· P’s bonus went unpaid after she moved to another brokerage, in spite of having surpassed the requirements as formulated by D for all three tiers of bonus eligibility. NB: Bonuses are unilateral contracts.
· “Substantial” part performance may be considered sufficient to bind an offeror to a unilateral contract.
Other Methods of Mutual Assent
Harlow & Jones v. Advance Steel (Fed. ED Michigan, 1976)
· D’s agent negotiated with P to deliver 1000 tons of steel, recorded the details of the agreement on daily worksheet. Parties later exchanged forms, containing substantially the same information but different boilerplate. Last of three shipments went out a few days late, and was rejected by D for that reason.
· In the UCC, a contract “may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract.” This is so “even though the moment of its [the contract’s] making is undetermined,” and “one or more terms are left open.”
· The steel was delivered late, but not with “material delay” (fact question for industry insiders). Without any explicit contractual arrangement, parties are held to this objective standard.
Consideration
Hamer v. Sidway (New York, 1891)
· Any forfeiture of a legal right is enough to constitute consideration.
Pennsy Supply v. American Ash (Pennsylvania, 2006)
· P had at no charge from D some aggregate which P used in a construction project. The product proved inadequate, and had to be disposed of as hazardous waste. When P contacted D to arrange for it, D refused.
· D did not give the aggregate away as a gift, it was getting rid of it in order to divest itself of the responsibility of disposing of it properly. Without this benefit, they would not have given it away. Likewise, if it had not been free, P may not have taken it. This is sufficient to constitute consideration.
· Where the detriment induces the promise, and the promise induces the detriment, the terms need not be explicitly bargained-over.
Dougherty v. Salt
· P’s Aunt drew up a promissory note for $3k payable upon her death. The return consideration was unclear, but appears to have been the general benefit of enjoying P’s company etc.
· This is the “voluntary and unenforceable promise of an executory gift.” The aunt was “conferring a bounty,” not squaring a debt.
Batsakis v. Demotsis (Texas, 1949)
· In wartime Greece, parties entered a written contract whereby D would owe P $2000 after the war in exchange for an amount of Greek currency variously valued at $25 – $750.
· Inadequacy or one-sidedness of consideration will not void a contract. It may signify something else going on that might excuse enforcement (mistake, duress), but in this instance it seems that everyone understood what was going on and got what they had bargained for.
Plowman v. Indian Refining (Illinois, 1937)
· Ps, former employees of D, allege that they were promised 1/2 their former pay for the rest of their lives as long as they continued to come pick up their checks. D claims there was no such promise after the payments were discontinued.
· Neither past performance nor moral obligation may constitute consideration.
Pre-Acceptance Reliance
Drennan v. Star Paving (California, 1958)
· P used D’s bid in its own bid for a contract, which was accepted. D then informed P that there had been a mistake and D’s performance would be about twice its original bid.
· D has significant interest in P using its bid, hope and intent it would be used, and reasonable expectation it would be used. Its own failure to exercise due care cannot be held against P. Ultimately it is in sub’s interest for general contractors to rely on their bids.
· A general contractor’s use of a sub’s bid forms an option contract that may bind the sub to their bid as submitted.
Berryman v. Kmoch (Kansas, 1977)
· D obtained an option contract on P’s property, but consideration was never exchanged. D went out to try to secure investors for the property. P asked to be relieved of the option and subsequently sells the land. D attempts to exercise the option.
· D’s actions in trying to find investors were not at the request of P, and would have been undertaken in pursuit of the purchase regardless of the option, so they cannot suffice for promissory estoppel.
· Promissory Estoppel requires
1. Promise (sometimes “clear and definite”)
2. Reasonable expectation of reliance on the promise
3. Actual reliance on the prom
hat date the absolute property of Boston University.”
· While Massachusetts rejects §90 and its elimination of the need for consideration, it finds that donor-donee relationships seldom produce a bargained-for exchange in the same manner as an arm’s-length transaction. Reliance and intent to be bound needs to be shown in order to overcome weak evidence of consideration.
· Charitable subscriptions may be enforced where there is reliance by the donee and evidence of “donative intent” by the donor.
Katz v. Danny Dare (Missouri, 1980)
· After many years working for D and much resistance, P accepted a proffered pension package. The package was discontinued a few years later after he took up some new jobs. The only question of §90 doctrine is whether his reliance was detrimental.
· P’s reliance resulted in a $10k reduction in annual income. Despite the allegation that his retirement was only in the face of the threat of termination, the fact remains that he accepted a retirement offer and was not fired.
· Detriment need not be immediate or the result of one particular act.
Shoemaker v. Commonwealth Bank (Pennsylvania, 1997)
· P’s mortgage with D required them to carry fire insurance, which they allowed to lapse. D contacted them to the effect that if they did not pick it up again, D would do it for them. They did so, but then let allowed it to lapse. When the house burned down, P sued D for not maintaining the insurance.
· In spite of P’s contractual obligation to maintain the insurance, there is an issue of material fact as to the elements of Promissory Estoppel which deserves consideration by a factfinder.
Restitution
Restitution, like Reliance, is a fall-back, equitable doctrine used to avoid injustice when traditional contract doctrine fails.
Basic elements:
· Unjust enrichment of one party,
· At the expense of another.
Credit Bureau v. Pelo (Iowa, 2000)
· D committed for treatment after suicidal episode. Refuses to pay the hospital bills, contending that any agreement that may have been entered into was done under duress.
· Court holds that D benefited from his treatment, even if he does not agree and did not consent.
· A party will be entitled to restitution for services rendered in spite of a lack of consent if consent is impossible or immaterial because of status.
· This serves broader policy goals relating to provision of medical services.
Commerce Partnership v. Equity Contracting (Florida, 1997)
· P, a subcontractor, sued D, the party who contracted with the Prime, after the Prime went bankrupt without paying P.
· In order to bring a cause in Restitution, P must show
o P conferred a benefit on D,
o D had knowledge of that benefit,
o D accepted or retained the benefit, and
o It would be circumstantially inequitable to let D retain the benefit without paying fair value for it.
· In this case, P must exhaust its options against the Prime, and also show that D paid no one else (including the Prime) for the work performed by P.
Webb v. McGowin
· P saved D’s precedent’s life, for which precedent promised D a fixed sum every two weeks until P’s death. After the death of the precedent, payments were discontinued.
· Where a promise is made in response to services rendered, the promise may be viewed as an affirmance or ratification of the act, creating the presumption of a preexisting request.
